Preparing your systems for MTD – Cloud vs Bridging Software

New analysis by HM Revenue & Customs (HMRC) has revealed that businesses that use fully compliant Making Tax Digital (MTD) software make fewer errors and spend less time on compliance compared to their peers who only use bridging software.

The tax authority’s research, published just ahead of the next MTD for VAT deadline on 1 April, also showed that the ongoing benefits of cloud accounting software far outweigh the costs.

The full introduction of MTD for VAT is only weeks away now and will require all VAT-registered businesses, including those below the £85,000 turnover threshold, will be required to complete quarterly digital VAT returns, regardless of income.

This will be followed in subsequent years by the further introduction of MTD for Income Tax, and eventually, a similar system for Corporation Tax.

According to the study, small businesses (defined as those with fewer than 30 employees and an annual turnover of less than £10 million) that are using fully compatible software report more positive changes than those using only bridging software.

Those SMEs using MTD-compliant software, such as cloud platforms, reported benefits including:

  • Reduced scope for error
  • Considerable time savings
  • Increased VAT confidence
  • Greater financial confidence, insight and control
  • Reduced emotional stress and anxiety.

Under MTD for VAT, businesses can choose to adopt fully functioning digital accounting software (such as Xero, QuickBooks, or Sage), or use MTD bridging software, which acts as a digital channel between a business’ spreadsheets and HMRC’s proprietary software.

The latter is usually cheaper but does not include additional transformative features, such as integrated billing and invoicing, payroll automation, financial forecasts and analysis, collaborative tools, and more.

If your business is not ready for this change yet or wants to move away from bridging software towards improved cloud accounting systems, please speak to our experts at MT Cloud.